By Marc Jones
LONDON, May 27 (Reuters) - A group of the world's leading central banks and more than 40 major commercial banks are to step up testing of one of the world's most closely watched digital payments projects, as the race to upgrade - and dominate - the international financial architecture heats up.
The Agora project, as it is known, is spearheaded by the Bank for International Settlements and involves the New York Federal Reserve as well as leading central banks from Europe, Korea, Mexico
and Japan whose currencies account for the bulk of global payments.
Cross-border transactions currently flow via a global web of commercial banks, but can be slow and costly when multiple banks are in the chain, or they involve smaller emerging economy currencies.
BIS Deputy General Manager Andrea Maechler said the group's latest round of testing had proved the ability to use "tokenised central bank reserves" - effectively digital forms of national currencies - together with "tokenised commercial bank deposits".
Global authorities have long sought to make international payments faster and cheaper and the Group of 20 leading economies has made it one of its key priorities this year.
Maechler said that while the Agora work was "not production-ready yet," further work and testing was now planned, and Canada's central bank would also join the project.
"It is a clear recognition that if the world is going into a tokenized ecosystem, one of the advantages is to move towards 24/7," she said, referring to an "always-on" global payments system.
Although not a direct rival, Agora is often compared to another digital payments project called mBridge, now led by China alongside the likes of Hong Kong, Thailand, the United Arab Emirates and Saudi Arabia.
India's central bank also has proposed that BRICS member countries, including Brazil, Russia, India, China and South Africa, make plans to link their digital currencies at the BRICS summit that it is due to host in a few months' time.
Asked why China's central bank or any of its commercial banks were not part of Agora, Maechler said the project had a different "constellation" of participants.
Tim Adams, the head of the Institute of International Finance, which helps coordinate the dozens of commercial banks involved, said the latest testing had been a milestone, demonstrating the ability for tokenised payments to be at scale.
It had also tested what is known as "atomic settlement" - where cross-border and cross-currency transactions in the banking system can be completed on an "all-or-nothing" basis as soon as key boxes have been ticked.
The central banks, meanwhile, have tested a so-called "layered prototype architecture" that enables each of them to retain autonomy over their respective national currency ledgers and keep certain key legal rules in place.
(Reporting by Marc Jones; Editing by Paul Simao)
